What are Dynamic NFTs? Understand with Use-Cases & Example

March 5, 2024
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12 minute read
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What are Dynamic NFTs? Understand with Use-Cases & Example

Non-fungible tokens, or NFTs, have overtaken the world over the past few years. Initially starting out as a way to tokenize digital artwork and collectables, NFTs have morphed into much more than that. One innovative concept that has emerged is that of dynamic NFTs. In this article, we will explore what dynamic NFTs are and how they work, compare them with static NFTs, and look at some potential use cases and examples of successful dNFT initiatives.

What are Dynamic NFTs?

Dynamic NFTs (Non-Fungible Tokens) are a type of NFT that can change or evolve over time based on various conditions or inputs. Unlike traditional static NFTs, which remain unchanged once minted, dynamic NFTs can update their metadata, visuals, or other attributes in response to specific triggers or data feeds.

Dynamic NFTs feature programmable and interactive elements, allowing digital assets to evolve over time. This capability enables artists and creators to offer a more engaging experience for buyers and collectors.

How do Dynamic NFTs Work?

The key difference between a static NFT and a dynamic one is that the latter is programmable and can change over time based on certain parameters. With static NFTs, the asset associated with the token does not evolve - it remains the same. On the other hand, dynamic NFTs are attached to smart contracts that define rules and conditions. The NFT's underlying asset can change or evolve based on these conditions.

For example, the metadata associated with the token, like image, title, attributes, etc., can be updated periodically. Or the smart contract can trigger specific actions in the real world, which are then reflected in the NFT. Some of the latest trending collections on NFT marketplaces are experimenting with dynamic traits and unlockable content to keep boosting engagement among collectors. 

This dynamic and programmable nature sets dNFTs apart from regular NFTs. The smart contract allows it to embed utilities, automate processes and implement various gamification elements on the tokens.

Key Features of Dynamic NFTs:

Below are some of the major features and benefits of dynamic NFts:

  1. Interactivity: Dynamic NFTs can respond to user interactions or external events, making them more engaging.
  2. Real-time Updates: They can reflect real-time data, such as scores in a game, stock prices, weather conditions, or social media activity.
  3. Programmable: The behavior of dynamic NFTs is often governed by smart contracts, which define the conditions under which the NFT will change.
  4. Enhanced Utility: Dynamic NFTs can be used in various applications, including gaming, sports, art, and collectibles, where changing states or evolving content adds value.

Static NFTs Vs. Dynamic NFTs (dNFTs)

Let's compare the key differences between static and dynamic NFTs:

  1. Metadata: With static NFTs, metadata like image, title, etc., remains fixed for life. Dynamic NFTs allow the metadata to be updated periodically based on programmed conditions.
  2. Value: The value of a static NFT is determined at the time of purchase based only on its inherent qualities. Dynamic NFTs can increase or decrease in value over time as their underlying conditions/metadata change.
  3. Scarcity: Static NFTs have a fixed supply that doesn't change. Dynamic NFT projects through smart contracts can become more or less scarce based on programmed rules, leading to fluctuations in pricing.
  4. Utilities: Static NFTs remain non-fungible digital assets with limited utilities. Dynamic NFTs, through embedded smart contracts, can provide owners additional real-world utilities, access, and rewards.
  5. Gamification: It is not possible to gamify static NFTs. However, dynamic NFTs offer new possibilities for leaderboards, score tracking, quests/tasks, etc., through their programmable smart contracts.
  6. Ownership Experience: Static NFT ownership is more static. Dynamic NFTs can offer a more engaging and evolving ownership experience over time through ongoing condition monitoring and metadata changes.

Dynamic NFT Use Cases

Given their dynamic and programmable nature, here are some potential use cases for dNFTs:

1. Digital Asset Tracking

Physical assets like home appliances, vehicles, etc., can be tokenized with dynamic NFTs. Relevant ownership data, location, usage stats, etc., can then be recorded on-chain via IOT sensors and periodically updated. This allows easy tracing of assets across supply chains. If an asset is sold further, the new owner's details get recorded, and all historical data stays attached to the NFT.

2. Collectibles

Trading cards, influencer collectables, sneakers, etc., issued as dynamic NFTs, can have attributes like player stats, social following numbers, etc., that automatically upgrade over time. Additional visual elements or digital discount coupons may get unlocked as the item achieves certain goals. Rarer items will hold more value as hype/demand fluctuates based on real-world correlations programmed on-chain.

3. Virtual World Items

Lands, vehicles, skins, etc., can be tokenized in multiplayer games and metaverses. Through gameplay, the attributes and traits of these dNFTs evolve. E.g., a weapon may become more powerful, or property may increase in size. Farming/crafting stats can unlock new abilities/bonuses. Over time, the items become more unique based on how each owner interaction personalized its smart contract program.

4. Social Tokens

Fan tokens issued for sports clubs or artists may entitle owners to real-world rewards/experiences or community governance based on support/engagement levels achieved. New perks like exclusive video chats, personalized gifts, etc., can automatically become available. Badges evolve to reflect the holder's commitment, driving further collector behaviour and platform engagement.

5. Rewards Programs

Brands can issue dynamic loyalty points that fluctuate in exchange value/spend options based on the total loyalty points earned. Spend tiers may unlock at different thresholds, with greater utilities unlocked over time. Transaction—or engagement-based algorithms ensure that power users derive more ongoing incentives from the platform.

6. Limited Edition Drops

Creators can launch limited edition collectibles as dynamic drops. Based on time, total mints achieved, or other quantifiers the creator wants to experiment with, additional artwork layers, animation triggers, or variations in scarcity may engage. This helps sustain interest and demand over the long run.

7. DeFi Protocols  

Projects offering loans, interest-earning pools, etc., can issue dynamic lending/borrowing tokens that alter in value based on real-world economic parameters they represent, such as USD exchange rates, inflation, etc. This makes such digital assets more robust and correlated to their off-chain counterparts.

Case Studies: Successful Dynamic NFT Initiatives

Here are a few examples of real-world dynamic NFT use cases that have gained traction:

NBA Top Shot is one of the most prominent dynamic NFT projects in the sports sector. As explained earlier, the dynamic NFT art automatically adjusts in value based on players' actual performance in matches. This unique way of linking the on-chain assets with real-world sport outcomes created explosive interest in NBA Top Shot. More fans wanted to engage as the dynamic NFT experience mirrored the excitement of a live game.

Gods Unchained is another popular dynamic NFT projects focused on digital trading cards. In this game, each card's attributes are programmed to evolve gradually through a dynamic NFT mechanism every time it is used in matches. As one player explained - "it's cool to see my card characters permanently growing stronger even after I'm done playing for the day". This permanent progression keeps players invested, as a dynamically improving NFT card collection remains uniquely theirs over time.

Splinterlands combines the engaging gameplay of Gods Unchained with dynamic nfts that evolve both during matches and through longer-term staking incentives. One player elaborated - "I like how this game empowers us to strengthen our dynamic NFT cards not just from regular plays but also by strategically locking them away for steady bonus rewards down the line". Thus, the thoughtfully designed dynamic NFT experience maintained an interest in both the short and long run.

Rarible allows complex dynamic NFT projects editions to be programmed according to each creator's vision. The protocol empowers experimentation through its flexible, dynamic NFT art. As one developer explained, "Rarible lets me release collections as dynamically adjusting editions that can adapt parameters like unlockable content or scarcity over some time. This enables unique experience-based dynamic nfts that remain engaging even after the primary sales."

The Future of Dynamic NFTs: Trends and Innovations to Watch

Dynamic programmability will likely become a core feature as the NFT space matures. Some potential areas dNFTs could impact include:

  • Social Experiences: Greater connectivity between NFT utilities/ownership benefits and real-world/virtual social profiles and communities.

  • Gaming Revolution: Wide usage of dNFTs for tradable in-game assets in virtual worlds, metaverses and the rise of "play-to-earn" economies.

  • Enterprise Adoption: Dynamic tokenization solutions for physical assets, supply chains, loyalty programs, and intellectual property/royalties management by companies.

  • Interoperability: Standards to promote cross-blockchain portability and composability of dynamic behaviours/utilities between different L1 and L2 networks.

  • Creative Applications: Novel dynamic use cases around digital art, collectables, apparel, ticketing, etc., that push NFT programmability to new frontiers.

FAQs

What is an example of a dynamic NFT?

Popular dynamic NFT projects like NBA Top Shot, Gods Unchained, and Splinterlands issue dynamic NFT art/collectibles like highlight clips, in-game characters, and trading cards. Their values and attributes automatically evolve over time according to programmed rules. This bridges the physical and digital via the dynamic NFT projects.

Can NFTs be dynamic? 

Yes, it is possible to make NFTs dynamic by associating smart contracts that allow the NFT's underlying explained asset/metadata to update periodically according to triggered conditions. These programmed smart contracts differentiate dynamic NFTs from regular static NFTs.

How to create a dynamic NFT?

To mint a dynamic NFT, developers code rules and logic into the NFT's smart contract. This contract defines how the attached dynamic NFT art can evolve—for example, its attributes upgrading based on external data over time. Projects like Rarible provide tools to configure dynamic behaviors for NFT collections.

What is the difference between static and dynamic NFT?

The key difference is that static NFTs do not change after minting. In contrast, dynamic NFTs can evolve because their smart contracts facilitate periodic metadata/attribute updates according to programmed triggers - thus making the DNFT experience engaging and long-lasting.

What are dynamic NFTs, and how do they work?

Dynamic NFTs link smart contracts to digital assets so their properties can change autonomously according to on-chain conditions. This allows the NFT art/item's value, scarcity, or utilities to dynamically adjust based on off-chain data integrated via oracles, bridging the physical and digital in an elegant manner.